2.7       Query

Taxability of a grant to meet the export marketing expenses.

1. A registered export house has availed the EXIM Bank financial assistance of Rs. 21 lakhs being the 50% of the cost to be incurred by it on eligible marketing activities under the “EXIM Bank Programme”. The said financial assistance is by way of a grant. The EXIM Bank has the right to suspend and terminate the right of the exporter to the use of the proceeds of the grant upon occurrence of circumstances which, in the opinion of the Bank, would adversely affect the implementation of the programme to be carried out. The EXIM Bank shall also have the right to recall the amount of grant already disbursed upon failure by the exporter to perform its obligations under the agreement.

2. The querists have sought the opinion of the Committee on the following issues arising from the above.

                        (a)  What will be the nature of the grant in the hands of the export house?

                        (b)  Whether the said grant will be taxable in the hands of the exporter.

                                                  Opinion                                           October 10, 1988

1. The Committee notes that where grants are given by the Government or a government agency to assist a trader in his business, they are, generally speaking, payments of a revenue nature [Meenakshi Achi v CIT 60 ITR 253 (SC), Higgs v Wrighten 26 TC 73; Ratna Sugar Mills Co. Ltd. v CIT 33 ITR 644; Bengal Textile Assn. V CIT 39 ITR 723 (SC)]. Such grants are supplementary trade receipts and not capital payments although they might be subject to contingencies of repayment [Smart v Lincolnshire Sugar Co. Ltd. 20 TC 643 (HL)].

2. The Committee is of the view that a grant given by a government agency to meet the expenditure on marketing activities is of the nature of a trading receipt and therefore is of revenue nature. Thus, it will be taxable in the hands of the assessee concerned.

3. On the basis of the above, the opinion of the Expert Advisory Committee on the issues raised by the querists in para 2 of the query, is as below:

(a) The grant received by the export house from the EXIM Bank to meet the expenditure on marketing activities is of the nature of a revenue grant.

(b) In view of (a) above the grant in question would be taxable in the hands of the export house.

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